The associated person rules are reasonably complex and their far reaching grasp usually results in association being established in one way or another between family entities.

Two recent High Court decisions, Concepts 124 v CIR [2014] and Staithes Drive Development Ltd v Commissioner of Inland Revenue [2015], have been causing some concern amongst practitioners as the decisions in these cases have further extended the reach of the associated person rules. In both cases, the High Court has held that entities are associated by virtue of them having the same corporate trustee shareholder. When the voting interest of this corporate trustee were measured, they were held to own over 50% interests in each company. 

The accepted position prior to these cases was that a person has two capacities – that of an individual and that of a trustee. Trustees were considered to be a separate and continuing body and association to entities was not measured on the basis of individual interests, but rather looking only at the trustees as an collective entity. A person (or company) could act as a trustee of two separate trusts without that action resulting in association. 

Many New Zealand professionals act as trustee for clients, usually through the operation of a shell trustee company. These two decisions would seem to suggest that unrelated clients of the same professional firm, or indeed of a public trustee company, will be considered to be associated persons. This would seem to be a ludicrous position for two entities that would have no knowledge even of the existence of the other. 

The implications of this would be significant and must surely be considered to be outside the intention of the associated person rules. It would seem that action needs to be taken to correct this anomalous decision and ensure that an equitable position is maintained.